Cisco shares surged approximately 8% on Thursday, marking their best day since March 2020. This spike came after the computer networking company disclosed that it would be reducing its workforce by 7%. Additionally, Cisco reported quarterly results that exceeded analyst expectations, prompting Morgan Stanley analysts to describe the results as better than anticipated.
Cisco announced $13.64 billion in revenue for the quarter, surpassing Wall Street’s predictions of $13.54 billion. Despite a 10% decline in revenue compared to the previous year, this marked the third consecutive quarter of sales decreases. Moreover, net income dropped by 45% year-over-year. However, the profit still managed to outperform expectations.
Analysts from Bank of America observed that networking sales decreased by 28.1% from the prior year, largely due to challenging comparisons. They highlighted the positive trend of order recovery, with data center switching orders increasing by double digits year-over-year. Furthermore, orders for campus switching and routing saw high single-digit growth. The analysts at Bank of America, who carry a buy rating on Cisco, also noted that orders related to artificial intelligence surpassed $1 billion, with revenue expected to escalate in the first half of 2025.
Cisco’s core networking business, encompassing routers and switches, has faced difficulties as larger corporations transition to cloud-based services. Despite this, Cisco has managed to offset some of the sales decline with recurring revenue from its software and securities divisions.
In response to the shifting landscape, Cisco revealed in a filing its restructuring plan, including lay-offs that will incur $1 billion in pre-tax charges. This move is aimed at facilitating investments in growth opportunities and enhancing operational efficiencies. CEO Chuck Robbins shared that the company intends to try to transition some affected employees to other roles within the organization. Discussing the role of artificial intelligence in this process, Robbins emphasized the potential for AI to streamline administrative tasks through automation systems.
This latest round of layoffs is the second significant workforce reduction for Cisco this year. Earlier in February, the company announced the elimination of 5% of its employees, totaling over 4,000 jobs. Prior to these cuts, Cisco had 84,900 employees at the conclusion of fiscal 2023.
Cisco’s recent financial results reflect a mixed performance, with revenue exceeding estimates but facing challenges in overall sales. The company’s strategic decision to restructure and cut jobs aims to position Cisco for future growth opportunities and operational efficiencies in the evolving tech landscape.